Introduction
The number of companies in Pakistan recently surpassed 300,000. While this advancement received acclaim, many quarters questioned its significance in terms of a wider positive business environment in Pakistan, generating jobs and economic growth. This criticism calls for a diagnostic analysis of problems faced by businesses in Pakistan across different stages to ascertain whether Pakistan has a conducive business environment.
The analysis uses the World Bank’s Business Ready report 2025 that assesses countries’ business landscape on ten stages in a life cycle: business entry, business location, utility services, labor, financial services, international trade, taxation, dispute resolution, market competition, and business insolvency. While Pakistan has largely streamlined its problems around business entry, the country has different challenges throughout the business life cycle that hamper an overall improved business landscape.
Business Entry
The cycle kicks off at the stage of business entry. With a score of 86.64, it is the strongest suit for Pakistan. Numerous advancements have facilitated businesses entering the market with ease. Company registration has been largely digitalized through the eZfile portal, with 99.9% of the companies being incorporated digitally. For the remaining 0.1% of the companies, the business center, established by the Securities and Exchange Commission of Pakistan (SECP), facilitates company registration as a one-stop solution.
Moreover, company law has been modernized to address the incorporation of different types of companies according to their size and level of risk. In this regard, registration requirements for Single Member Companies (SMCs) and Small and Medium Enterprises (SMEs) have been reduced to ease incorporation. This establishes a tiered regulatory framework, easing the process for smaller businesses and ensuring regulatory compliance for high-risk, large, and public firms. Apart from this, registration is more integrated among different regulatory bodies, maintaining robust collaboration and expediting the process of licensing and incorporation. These steps depict how business entry has significantly improved in Pakistan.
Despite these reforms, businesses face multiple challenges at this stage. Delays are faced in attaining No Objection Certificates (NOCs) and licenses from different local and sector-specific bodies. The next steps in reforming business incorporation ought to further streamline the process of acquiring NOCs by integrating different local and sectoral approval regimes. The case study of liberalization in India after the upending of license raj in the 1990s offers ample policy evidence to reduce red tape in Pakistan to increase ease of doing business. Largely, though, business incorporation has been modernized, and the real challenges lie ahead of the business’s life cycle.
Business Location
The next phase of a business cycle is the selection and acquisition of a suitable business location. The score of 67.38 reveals many challenges at this step for businesses. Security remains the primary issue for Pakistan’s business environment. Unfortunately, the country is fighting on both internal and external fronts with security threats. This limits the regions where investments can occur and keeps businesses at high security risk.
Apart from security, fragmented land records make land disputed and difficult to acquire. Added to this, approvals from the local and provincial governments make acquisition complex and time-consuming. Thirdly, Pakistan’s transport network is limited, which reduces the ease of transportation of raw materials and finished goods. Industries situated at the center of Pakistan face a double logistics penalty: businesses have to first bear transportation costs of raw materials from the coastline to industrial areas and then finished goods from industries back to the coastline for exports.
To improve Pakistan’s score on business location, Pakistan ought to continue its security measures and diplomatic efforts to create a better security atmosphere in the country. Secondly, a national, digitized data repository should be established for land records that would facilitate land acquisition. Moreover, industrial zones should offer all the amenities, such as utility connections, allowing an investor to operationalize business faster.
Special Economic Zones (SEZs) under the China Pakistan Economic Corridor (CPEC), Rashakai SEZ, Allama Iqbal Industrial City, Dhabeji SEZ, Moqpondass SEZ, Bostan SEZ, Mohmand Marble City, Mirpur Industrial Zone, and Industrial Park on Pakistan Steel Mill Land, offer an opportunity to develop such industrial zones with all the facilities. An added benefit is that some of these zones are closer to the ports, which would reduce transportation charges for the investors. Coupled with this, CPEC’s road and rail projects should also be developed to provide a better network for businesses to transport raw materials and finished goods.
Utility Services
Next comes Pakistan’s score on utility services, which is 69.02. In terms of pricing, Pakistan’s energy prices in 2024 were 13.5 cents per kilowatt-hour. Compared to this, the energy cost in India in 2024 was 6.3 cents per kilowatt-hour. A higher relative cost of energy increases the cost of production and disincentivizes investors from starting businesses in Pakistan. Apart from high prices, an unstable and unreliable energy supply also disturbs industrial and business operations. These issues discourage investors from investing in Pakistan, reducing the country’s score on business readiness.
An overhaul of the energy sector is required in Pakistan in terms of production and distribution of energy. Apart from this, a medium-term solution of economic zones under CPEC offers the steepest returns if they are equipped with reliable, stable, and subsidized energy sources. Moreover, developing industries closer to the port will also allow them to buy cheaper energy generated from the underutilized plants located in the South.
Labor
Businesses also struggle to find suitable labor in Pakistan, a metric with a score of 63.92. The country is lagging behind human capital indices. A weak Human Development Index of Pakistan depicts that a person born today will only reach an average of 41% of their potential productivity as an adult due to the lack of adequate education and health. Literacy rates in the country remain low.
Even the formal education system is disconnected from industry requirements, leading to a lack of employable skills among the labor force. Beyond this, the country faces low productivity of its labor force due to a number of health issues such as malnutrition and stunting. This raises a clarion call for governments to address human capital challenges in both education and health. This is an investment that would bear high returns for the economy through the establishment of businesses and innovation.
Financial Services
Access to formal financial services in Pakistan gets a score of 66.79. In Pakistan, governments borrow money from banks for deficit financing, which is less risky for banks than private investment. Consequently, 80% of the domestic credit goes to government borrowing and leads to crowding out of private borrowing. This has limited Pakistan’s investment-to-GDP ratio, which is approximately 14%, constraining the country’s long-term economic growth prospects.
Apart from this, access to formal financing avenues remains limited in a country where a large proportion of the population remains unbanked. Innovative ventures and SMEs are considered riskier and lack adequate collateral backing, reducing their access to financing from banks.
Moving forward, Pakistan should develop a diversified and inclusive financing ecosystem. Governments should reduce crowding out of private borrowing by narrowing fiscal deficits. Financing options should be broadened to include avenues such as Non-Banking Financial Companies (NBFCs), venture capital, private funds, and bonds to reduce the burden on commercial banks and improve accessibility of finance for businesses, especially SMEs.
International Trade
The next stage in the business life cycle is international trade, where Pakistan’s performance, with a score of 43.04, is among the weakest. Businesses grow when they are integrated with the global economy, allowing the import of raw materials and export of finished goods to countries with higher purchasing power. However, Pakistan’s businesses are not integrated with the global supply chains. Traders face high tariffs, documentation, and approvals at the borders, disincentivizing them to sell or compete in the global market, reducing prospects of growth and competitiveness of Pakistani businesses.
Comparative evidence suggests that there are not many countries that have grown economically by focusing merely on the domestic market. China’s closed economy opened up through reforms of creating SEZs and simplifying procedures for trade, slowly securing its place as the largest exporter in the world. Similarly, the East Asian miracle rests on building an export-friendly ecosystem with efficient customs and investment in export-oriented industries that facilitated the emergence of leading global companies.
Pakistan’s national tariff policy 2026-2030 offers a promising transition to creating an export-friendly ecosystem. It envisages a reduction of average tariffs from over 20% to 9.7%. Additional customs duties and regulatory duties will also be phased out, streamlining the structure. These reforms, if implemented, are a step in the right direction to help Pakistan transition to an export-oriented economy.
Taxation
Another aspect that affects businesses is taxation. A conducive business environment in this regard requires countries to create a tax system that facilitates and promotes businesses to grow and remain compliant. Pakistan’s score of 50.07 calls for improvement in this area. High taxes discourage entrepreneurship, investments, and the formalization of the informal sector. Beyond the scale of taxes, the filing system is also complex for businesses, increasing the cost of compliance and reducing the incentive to establish formal businesses.
On this front, Pakistan requires an integrated and streamlined tax system with greater harmony and standardization among inter-provincial jurisdictions. Moreover, the nexus between politics and economics requires the country to adopt greater predictability in taxation policy around rates and exemptions.
Dispute Resolution
Dispute resolution is Pakistan’s weakest area, identified in the report with a score of 39.69. Resolution of commercial disputes through courts takes time due to a massive case backlog in Pakistan, causing delays in proceedings and a greater delay in relief. This is a major concern because enforcement of contracts is the backbone of a business-friendly environment, as it provides a predictable and dependable system for businesses to establish and continue operations.
Reforms should therefore be adopted in Pakistan to increase judicial efficiency through digitalization and targeted commercial courts. Alternate Dispute Resolution (ADR) mechanisms should be employed to improve mediation and reduce the burden on litigation. In this regard, advanced plans to establish the country’s first independent, not-for-profit Financial Services Dispute Resolution Centre (DRC) are underway.
Alternative forms of dispute resolution are preferred around the world, and mediation is specifically more important in Pakistan to reduce the burden on the case backlog and expedite dispute resolution. Comparative evidence from Singapore’s Financial Industry Disputes Resolution Centre (FIDReC) provides a model for specialized dispute resolution as a way to improve the business environment. Hence, a strong dispute resolution ecosystem should be furthered in Pakistan to increase confidence in conducting business.
Market Competition
Pakistan’s performance on market competition, with a score of 49.47, also needs improvement. High market concentration in Pakistan reduces market competition. Simultaneously, high barriers to entry make market penetration difficult for new entrants, reducing consumer choice and increasing prices. Skewed subsidies in saturated sectors render an unequal playing field in the market and discourage the growth of innovation. Moreover, State-Owned Enterprises (SOEs) are often protected, which reduces market efficiency.
To improve market competition, access to credit for startups and SMEs ought to be increased through the banking and non-banking sectors to facilitate their market entry. Market concentration can be reduced through strengthening the Competition Commission of Pakistan’s (CCP) capacity to investigate and enforce anti-competition practices. Moreover, public procurement processes ought to be digitalized to encourage smaller and new entrants to participate. Hence, Pakistan’s business environment needs to allow firms, including new entrants and SMEs, to compete fairly.
Business Insolvency
The last stage of a firm’s cycle discussed in the B-Ready Report is business insolvency. Pakistan’s score is 52.40 in this aspect. From a policy perspective, business insolvency ought to be first perceived as economic renewal rather than the decline of businesses. It includes the institutional avenues given to a business to first save itself through restructuring, mergers, and reorganization. In the last scenario, declining businesses can be allowed to exit efficiently through liquidation, creditor recovery, and reallocation of assets, while protecting the rights of minority shareholders. This protects people’s jobs and allows entrepreneurs to protect their businesses.
To improve Pakistan’s performance on business insolvency, early warning systems need to be put in place to detect distress. Here, regulatory supervision powers can be compounded with digitalization to ensure automated collection of data and business accounts and detection of distress. Such financial monitoring will allow early detection of distress to offer restructuring, debt workouts, and strategizing options.
In case the business is beyond repair, the concerned quarters should allow for efficient and faster insolvency and exit options. In this, there is a need to develop professional capacity in insolvency proceedings. In addition to this, liquidation procedures ought to be streamlined to allow for efficient and faster liquidation. Legal corpus, such as the Company Law 2017, can be amended to reduce regulatory steps in this process.
An efficient insolvency plan will have a wider impact on Pakistan’s business landscape. Firstly, social stigma around insolvency will reduce. This will ultimately lead to greater entrepreneurship, flexible redirection of capital, and risk-taking in Pakistan, where people are averse to business. Moreover, creditors often recover only a portion of their claims after lengthy proceedings. This reduces the willingness of credit institutions to give out loans. If business insolvency improves, timely asset realization and credit recovery will improve creditors’ confidence to lend, creating more financing opportunities for businesses in Pakistan.
Conclusion
In conclusion, the increase in the number of companies reflects the ease of business entry. However, numerous challenges need to be resolved throughout the business cycle to improve Pakistan’s ease of doing business and standing on the Business Ready Report. Reforms and sustainable policy priorities ought to be placed on creating a conducive business environment for Pakistan to increase its economic growth and sustainable development.
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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.
Pareesa Memon has a bachelor's degree in economics and politics from LUMS. She has previously worked at the Research and Development Foundation (RDF) as a research associate.
